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Medical panel's estimates inflate doctors' pay

By Peter Whoriskey and Dan Keating, The Washington Post

Updated:
07/22/2013 06:35:09 PM EDT

Barbara Levy, seen in this July 8, 2013 photo in Washington, is chair of the American Medical Association committee that sets work values for procedures performed by doctors. Illustrates PRICES (category f), by Peter Whoriskey and Dan Keating (c) 2013, The Washington Post. Moved Saturday, July 20, 2013. (MUST CREDIT: Washington Post photo by Matt McClain) (MCCLAIN)

When Harinath Sheela was busiest at his gastroenterology clinic, it seemed he could bend the limits of time.

Twelve colonoscopies and four other procedures was a typical day for him, according to Florida records for 2012. If the American Medical Association's assumptions about procedure times are correct, that much work would take about 26 hours. Sheela's typical day was nine or 10.

This seemingly miraculous proficiency, which yields good pay for doctors who perform colonoscopies, reveals one of the fundamental flaws in the pricing of U.S. health care, a Washington Post investigation has found.

Unknown to most, a single committee of the AMA, the chief lobbying group for physicians, meets confidentially every year to come up with values for most of the services a doctor performs.

Those values are required under federal law to be based on the time and intensity of the procedures. The values, in turn, determine what Medicare and most private insurers pay doctors.

But the AMA estimates of the time involved in many procedures are exaggerated, sometimes by as much as 100 percent, according to an analysis of doctors' time, interviews and medical journals.

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Indeed, if the time estimates are to be believed, some doctors would have to be averaging more than 24 hours a day to perform all of the procedures that they are reporting. This volume of work does not mean these doctors are doing anything wrong. They are just getting paid at rates set by the government, under the guidance of the AMA.

In fact, in comparison with some doctors, Sheela's pace is moderate.

Take, for example, those colonoscopies.

In justifying the value it assigns to a colonoscopy, the AMA estimates that the basic procedure takes 75 minutes of a physician's time, including work performed before, during and after the actual scoping.

But in reality, the total time the physician spends with each patient is about half the AMA's estimate — roughly 30 minutes, according to medical journals, interviews and doctors' records.

Indeed, the standard appointment slot is half an hour.

To more broadly examine the validity of the AMA valuations, The Post conducted interviews, reviewed academic research and conducted two numerical analyses: one that tracked how the AMA valuations changed over 10 years and another that counted how many procedures physicians were conducting on a typical day.

It turns out that the nation's system for estimating the value of a doctor's services, a critical piece of U.S. health-care economics, is fraught with inaccuracies that appear to be inflating the value of many procedures:

* To determine how long a procedure takes, the AMA relies on surveys of doctors conducted by the associations representing specialists and primary care physicians. The doctors who fill out the surveys are informed that the reason for the survey is to set pay. Increasingly, the survey estimates have been found so improbable that the AMA has had to significantly lower them, according to federal documents.

* The AMA committee, in conjunction with Medicare, has been seven times more likely to raise estimates of work value than to lower them, according to a Post analysis of federal records for 5,700 procedures. This happened despite productivity and technology advances that should have cut the time required.

* If AMA estimates of time are correct, hundreds of doctors are working improbable hours, according to an analysis of records from surgery centers in Florida and Pennsylvania. In some specialties, more than one in five doctors would have to have been working more than 12 hours on average on a single day — much longer than the 10 or so hours a typical surgery center is open.

Florida records show 78 doctors — gastroenterologists, ophthalmologists, orthopedic surgeons and others — who performed at least 24 hours worth of procedures on an average workday.

Some former Medicare chiefs think the problem arises from giving the AMA and specialty societies too much influence over physician pay. Hospital fees are determined separately.

"What started as an advisory group has taken on a life of its own," said Tom Scully, who was Medicare chief during the George W. Bush administration and is now a partner in a private equity firm that invests in health care. "The idea that $100 billion in federal spending is based on fixed prices that go through an industry trade association in a process that is not open to the public is pretty wild."

He said that, every now and again, former Medicare chiefs — Republicans and Democrats — gather for a lunch, and when they do, they agree that the process is, at best, unseemly.

"The concept of having the AMA run the process of fixing prices for Medicare was crazy from the beginning," Scully said. "It was a fundamental mistake."

In response, the chair of the AMA committee that sets the values, Barbara Levy, a physician, acknowledged that "all of the times are inflated by some factor" — though not by the same amount.

But she defended the accuracy of the values assigned to procedures, saying that the committee is careful to make sure that the relative values of the procedures are accurate — that is, procedures involving more work are assigned larger values than those that involve less. It is up to Congress and private insurers then to assign prices based on those values.

"None of us believe the numbers are fine-tuned," Levy said. "We do believe we get them right with respect to each other."

Moreover, the committee has reduced the valuations of more than 400 procedures in recent years to address such concerns, AMA officials said.

Over that time, Medicare officials have increasingly looked askance at the AMA estimates.

But even though the AMA figures shape billions in federal Medicare spending and billions more in spending from private insurers, the government is ill-positioned to judge their accuracy.

For one thing, the government doesn't appear to have the manpower. The government has about six to eight people reviewing the estimates provided by the AMA, government officials said, but none of them do it full time.

By contrast, hundreds of people from the AMA and specialty societies contribute to the AMA effort. The association "conservatively" has estimated the costs of developing the values at about $7 million in time and expense annually. The AMA and the medical societies, not the government, develop the raw data upon which the analysis is based.

Over the past decade, Medicare's payments to doctors have risen quickly. Medicare spending on physician fees per patient grew 58 percent between 2001 and 2011, mostly because doctors increased the number of procedures performed but also because the price of those procedures rose, according to MedPAC, an independent federal agency that advises Congress about Medicare.

Yet public oversight of the AMA process is difficult.

Members of the public may attend committee meetings if they get the approval of the chairman, but even when they're invited, attendees must sign a confidentiality agreement. That is meant to prevent interim decisions from spurring inappropriate market speculation and industry confusion, AMA officials said.

Other groups that make recommendations to the government are governed by the Federal Advisory Committee Act, which requires that meetings be public and that documents be publicly available. But those requirements do not apply to the AMA committee, officials said, because the AMA is not formally considered an advisory committee.

Even so, the committee's influence on federal spending over time has been expansive: In some years, Medicare officials have accepted the AMA numbers at rates as high as 95 percent.

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The fundamental question is difficult, even philosophically: What should a doctor make?

The forces that normally determine prices — haggling between buyers and sellers — often don't apply in health care. Prices are hard to come by; insurers do most of the buying; sick patients are unlikely to shop around much.

At its inception, the Medicare system paid doctors what was described as "usual, customary and reasonable" charges. But that vague standard was soon blamed for a rapid escalation in physician fees.

In the late '80s and early '90s, the United States called on a group at Harvard University to develop a more deliberate system for paying doctors.

What they came up with, basically, is the current point system. Every procedure is assigned a number of points — called "relative value units" — based on the work involved, the staff and supplies, and a smaller portion for malpractice insurance.

Every year, Congress decides how much to pay for each point — this year, for example, the government initially assigned $34.02 per point, though prices vary somewhat with location and other factors.

This point system is critical in U.S. health-care economics because it doesn't just rule Medicare payments. Roughly four out of five insurance companies use the point system for the basis of their own physician fees, according to the AMA. The private insurers typically pay somewhat more per point than does Medicare.

Once the system developed by the Harvard researchers was initiated, however, the Medicare system faced a critical problem: As medicine evolved, the point system had to be updated. Who could do that?

The AMA offered to do the work for free.

Today, the 31-member AMA committee that makes the update recommendations to Medicare — it is known as the Relative Value Update Committee, or "RUC" — consists of 25 members appointed by medical societies and six others. The chair is appointed by the AMA.

To inform their decisions, the committee relies on surveys submitted by the relevant professional societies. For example, in setting the value for a colonoscopy, the committee has turned to the American Gastroenterological Association and a similar group for information.

Typically, the surveys ask doctors about the time and intensity of the procedure under study.

The survey "is important to you and other physicians," the standard form tells doctors, "because these values determine the rate at which Medicare and other payers reimburse."

Sometimes the doctors within a specialty will overestimate the value of their work, Levy said. When that happens, the committee has increasingly decided to significantly lower their estimates of the work involved.

"Suppose I am a cardiologist, and I think I am the most important thing on Earth," Levy said.

The RUC, she said, may have to say, "We know you're really important but" you've overestimated the work involved on the survey.

"The 31 voting people around that table can be really harsh," Levy said. "Someone can come to us with data that looks skewed, and we tell them, 'It doesn't pass the smell test.' "

But critics of the AMA process, including former Medicare chiefs and the Harvard researchers who created the system, say that biased surveys and other conflicts of interest make the results unreliable.

In developing the point system, the Harvard researchers and the government made available their raw data and statistical methods and held public meetings; they also limited the role of the AMA and specialist societies, participants in that process said.

The AMA process is not so open.

The current set of values "seems to be distorted," said Professor William Hsiao, an economist at the Harvard School of Public Health who helped develop the point system. "The AMA fought very hard to take over this updating process. I said this had to be done by an impartial group of people. This is highly political."

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Federal law makes the importance of time explicit: The work points assigned to a procedure will reflect the "physician time and intensity in furnishing the service" and includes the physician's time before, during and after a procedure. Every year, the Medicare system publishes its time estimates for every service, which are based on AMA surveys.

"Improving the accuracy of procedure time assumptions used in physician fee schedule ratesetting continues to be a high priority," agency officials wrote last year. "Procedure time is a critical measure."

To examine the plausibility of the estimated times, The Washington Post analyzed the records for doctors who work in outpatient surgery clinics in Florida.

The Post chose the outpatient surgery clinics for review because their surgery records for Medicare and private payers were publicly available. The calculations of physician time used by The Post are conservative because they do not include the procedures that the doctors performed at hospitals, where many such doctors also see patients. The counts also exclude secondary procedures performed on a given patient, as well as follow-up visits.

Even so, for this group of doctors, the time estimates made by Medicare and the AMA appear significantly exaggerated.

If the AMA time estimates are correct, then 41 percent of gastroenterologists, 23 percent of ophthalmologists and 17 percent of orthopedic surgeons were typically performing 12 hours or more of procedures in a day, which is longer than the typical outpatient surgery center is open, The Post found in the Florida data.

Additionally, if the AMA estimates are correct, more than 3 percent of ophthalmologists and internists, and more than 2 percent of orthopedic surgeons are squeezing more than 24 hours of procedures into a single day.

Florida is not unique. In a similar review of nine endoscopy clinics in Pennsylvania, The Post found 25 of 59 doctors at nine Pennsylvania gastroenterology clinics performed an average 12 hours or more of procedure time at least one day per week, with two totaling over 24 hours, rates similar to the Florida pattern.

Ophthalmologist David Shoemaker is among the busiest doctors in Florida, performing 3,594 cataract surgeries and similar procedures last year. His workload of 30 to 40 surgeries per day on Mondays and Tuesdays amounts to 30-plus-hour workdays if AMA time estimates were correct. Yet he works about 10 1/2 hours those days.

Shoemaker's seven locations of Centers for Sight have an all-in-one integration from testing, anesthesiology, preparation, surgery and post-operative care, said James Dawes, chief administration officer.

"We shun the word 'assembly line,' " Dawes said. "We're in the patient care business, and every patient is unique. Every eye is unique. We've worked hard to make sure it doesn't feel like an assembly line."

The finding that doctors are working much more quickly than AMA assumes is supported by research done by MedPAC that found that the actual times of surgery were quite a bit less than the AMA-Medicare estimates.

Using operating room logs, they calculated the average times of 60 key surgeries and invasive diagnostic procedures. For all but two of the procedures, the AMA estimates were longer. For example, while an abdominal hysterectomy took 138 minutes on average, the AMA said it takes nearly twice that long.

"Surgical times for other related services are likely to be overstated as well," the researchers Nancy McCall, Jerry Cromwell and Peter Braun concluded. With Hsiao, Braun helped create the point system.

The AMA's Levy said the committee has developed other ways to estimate values that don't depend on time.

The critics don't "get the concept of where the [committee] is in 2013," Levy said. "We've evolved a bunch of processes that make them better than they were when Harvard did it."

Whatever their methods, however, the AMA panel has been raising the work points for procedures.

Between 2003 and 2013, the AMA and Medicare have increased the work values for 68 percent of the 5,700 codes analyzed by The Washington Post, while decreasing them for only 10 percent.

While advances in technology and skill should have reduced the amount of work required, the average work value for a code rose 7 percent over that decade, largely because officials raised the value of doctors' visits. The rise came in addition to allowances for inflation and other economic factors.

When discussing the rise in the nation's bills for physicians, AMA officials note that they only assign points to procedures — so the Medicare bill depends upon how much the federal government decides to spend for each point.

Officials determine that spending by several complex formulas laid out in federal rules. One of them forces Medicare to lower how much it pays per point when work values rise significantly. Every year since 2003, however, the other formulas have been overridden by Congress, which has adjusted the payments independently.

That means it's difficult to definitively link the nation's rising Medicare bill to the increasing work values set by the AMA. However, critics say the AMA's time exaggerations undoubtedly help inflate the prices of many procedures.

Medicare officials have been trying to develop ways to more accurately count doctor work and are conducting two studies to refine its measurement.

The Medicare bureaucracy "takes into account a number of different factors and sources of information, including the RUC recommendations, when setting reimbursement rates for physicians," said agency spokeswoman Tami Holzman. The acceptance rate of the AMA's values has fallen in recent years from 90 percent to about 70 percent.

"We want to ensure that relative payment rates for physicians' services are appropriate and fair," she said.

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Most people don't time their own colonoscopies.

But Robert Berenson, a physician, a former Medicare official and now a fellow at the Urban Institute, has been a longtime skeptic of the time measurements.

When he had his own, Berenson checked his watch.

The actual procedure time — "scope in to scope out" — was exactly half of what Medicare estimates.

"It reminds me of the Marx Brothers line: 'Who are you going to believe, me or your own eyes?' " Berenson said.

An estimated 15 million colonoscopies are performed annually in the United States, mainly to detect and prevent cancer in people older than 50. In the procedure, a tube with a video camera at the tip is inserted through the anus into the colon. Pictures from the inside appear on a screen.

In calculating how much should be paid for a procedure, the AMA and Medicare make some very specific time estimates.

For a colonoscopy, the total physician time is 75 minutes. This includes 25 minutes of evaluating and positioning the patient; 5 minutes for the physician to dress, scrub and wait; as well as 15 minutes afterward. The procedure itself is timed at 30 minutes.

Berenson counted 15 minutes in his own procedure — while that Medicare estimate was twice that long.

Likewise, a New England Journal of Medicine article reported that in a study of 2,000 different colonoscopies, the average duration of the actual basic screening procedure was 13.5 minutes — not the 30 minutes estimated by AMA. Similarly, it found that a colonoscopy with polyp removal took 18 minutes — as opposed to the 43 minutes estimated by the AMA.

The Washington Post asked gastroenterologists if the procedure takes the 75 minutes estimated by the AMA.

"Of my time?" said Frederick Ruthardt, a gastroenterologist in Uniontown, Pa., shaking his head. He performed hundreds of them in 2011, according to state records. "That sounds pretty high."

It is possible that in 1992, critics allow, when the price list was first developed, a colonoscopy actually took something close to 75 minutes. But in the decades since, the technology has undergone a revolution.

The tubular instruments are now far easier to move through the colon — the physician can stiffen or weaken the probe as necessary.

Meanwhile, digital technology has vastly improved the doctor's view. In the early '90s, doctors had to hunch over an eyepiece similar to that of a microscope for a look; now the images are displayed on a large screen in high-definition video.

"The evolution has saved labor and improved accuracy," said David Barlow, who has worked on developing the devices for decades and is now a vice president at Olympus America.

Indeed, some doctors said it has cut the time and discomfort in half.

Yet despite these advances, the AMA and Medicare say the amount of work estimated in a colonoscopy essentially hasn't budged. The work involved was 3.7 "relative value units" or points in the early 1990s; after more than two decades of labor-saving advances, it is still worth 3.7 points. The typical Medicare price including overhead is about $220.

A specialty group that advocates on behalf of the doctors who perform colonoscopies, the American Gastroenterology Association, said the number is justified despite the improvement in technology.

"The paradox is that we are spending more time than what you might assume," said Joel Brill, a gastroenterologist who served as a liaison between the association and the RUC. "Things that you might not have been able to see through the scope, you can see now."

Levy said the RUC is slated to review the code again in the coming year.

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Two problems arise when some procedures are overvalued, according to the critics.

First, obviously, it means some patients and insurers are paying too much.

Second, doctors may be more likely to perform those procedures than they otherwise would be.

Indeed, while health experts worry that many people who should be getting colonoscopies are not, it appears that some patients are getting too many.

Average-risk patients who have a colonoscopy that shows no signs of trouble are not supposed to receive another for 10 years, according to Medicare guidelines.

But according to researchers at the University of Texas Medical School, about 46 percent of patients were getting another colonoscopy within seven years.

The finding, based on a review of 24,000 patient records and reported last year in the Archives of Internal Medicine, said that such colonoscopies were more likely to be performed by doctors rated as "high volume" providers.

One of the study's authors, James Goodwin, a geriatrician at the University of Texas in Galveston, says doctors make decisions based on a large number of factors. But it's foolish, he said, to ignore the financial angles.

"Economic incentives in medicine are like the force of gravity," Goodwin said. "To pretend they don't exist is crazy. They're there."

So how much does a physician make on a basic colonoscopy?

A good place to look is Pennsylvania, where the state tracks medical procedures and the profits of the doctor-owned surgery centers.

Even in an otherwise down-at-the-heels former coal town, the procedure can be big business.

At Schuylkill Endoscopy, located in a tidy green building behind the McDonald's in Pottsville, Pa., three doctors performed thousands of colonoscopies in 2011, taking in more than $700,000, along with hundreds of thousands more for other similar procedures. On top of those physician fees, the endoscopy clinic, which is owned by two of the physicians and a management company, took in $1.5 million in operating profits in 2011, according to state records.

"I am very comfortable — very grateful," said one of the owner-doctors, Amrit Narula, who lives in a modern-style, 5,000-square-foot house atop a ridge here.

Like other doctors interviewed for the story, Narula noted that he has no role in setting the Medicare value. He does not lobby Medicare and has never filled out one of the RUC surveys. He agreed that the time estimates in his field sound exaggerated.

By itself, the professional fee for a colonoscopy makes him about $260 an hour after his expenses. (That's a figure that's based on the clinics' mix of patients and the Medicare assumptions about overhead.)

Is that too much? In the past, the loudest criticism of the point system has come from primary care physicians, who think their work has been undervalued.

The median salary for a gastroenterologist was $481,000 in 2011, according to data from the Medical Group Management Association. By contrast, the median salary for a pediatrician was $204,000 and that of a general internal medicine doctor was $216,000. Those kinds of disparities are leading medical students away from primary care, critics say.

"I didn't know they got that many RVUs [points] for a colonoscopy — that's kind of amazing," said Cynthia Lubinsky, a family practitioner in the next county over from Narula. "Do I believe that the payment system is fair? I would have to say no."

Even if the method that the government uses for setting values is haphazard, however, the question of what doctors ought to be earning is unanswered.

It is an occupation, Narula says, that consumes one's life.

It has required more than a decade of training: college, medical school, an internship and a fellowship.

He visits patients every day after his work at the surgery center. He does rounds there every third weekend. He is on call every third night.

When the subject turns to fair compensation, he draws comparisons to other lines of work.

"What is the right price?" Narula asked. "Who can tell? A lawyer can charge $400 an hour. My accountant charges me for 15 minutes of time even if he just opens an e-mail from me. And what about the bankers? . . . Ultimately, this is for society to decide."

Amrit Narula, seen in this July 1, 2013 photo at Schuylkill Endoscopy in Pottsville, Pa., where he is co-owner and a physician, says that being a doctor consumes one's life. Illustrates PRICES (category f), by Peter Whoriskey and Dan Keating (c) 2013, The Washington Post. Moved Saturday, July 20, 2013. (MUST CREDIT: Photo for The Washington Post by Duncan Kendall) (DuncanKendall)